Ontario Court Of Appeal Upholds Finding Of Breach Of Fiduciary Duty Respecting Executive Compensation

The Ontario Court of Appeal recently upheld a trial court decision which concluded that the CEO, who was also a director, breached his fiduciary duty to the corporation when the directors of Unique Broadband Systems, Inc. approved changes to a share appreciation rights plan (SAR Plan) and an extraordinary bonus. In Unique Broadband Systems, Inc. (Re), 2014 ONCA 538, the Court of Appeal also recognized that as a consequence of the fiduciary breach, the CEO was not only not entitled to the approved payments, but also was not entitled to indemnification under contractual or other director and officer indemnities or enhanced severance upon termination of employment. The Court emphasized that disclosure of conflicts, reliance on legal advice and the business judgment rule may not be enough to shield directors from breaching the fiduciary duties owed to the corporation. Read More...

Supreme Court of Canada rules there is a new general duty of "honest contractual performance."

In Bhasin v Hrynew:

"C markets education savings plans to investors through retail dealers, known as enrollment directors, such as B. An enrollment director’s agreement that took effect in 1998 governed the relationship between C and B. The term of the contract was three years. The applicable provision provided that the contract would automatically renew at the end of the three year term unless one of the parties gave six months’ written notice to the contrary.

H was another enrollment director and was a competitor of B. H wanted to capture B’s lucrative niche market and previously approached B to propose a merger of their agencies on numerous occasions. He also actively encouraged C to force the merger. B had refused to participate in such a merger. C appointed H as the provincial trading officer (“PTO”) to review its enrollment directors for compliance with securities laws after the Alberta Securities Commission raised concerns about compliance issues among C’s enrollment directors. The role required H to conduct audits of C’s enrollment directors. B objected to having H, a competitor, review his confidential business records.

During C’s discussions with the Commission about compliance, it was clear that C was considering a restructuring of its agencies in Alberta that involved B. In June 2000, C outlined its plans to the Commission and they included B working for H’s agency. None of this was known by B. C repeatedly misled B by telling him that H, as PTO, was under an obligation to treat the information confidentially. It also responded equivocally when B asked in August 2000 whether the merger was a “done deal”. When B continued to refuse to allow H to audit his records, C threatened to terminate the 1998 Agreement and in May 2001 gave notice of non‑renewal under the Agreement. At the expiry of the contract term, B lost the value in his business in his assembled workforce. The majority of his sales agents were successfully solicited by H’s agency.

B sued C and H. The trial judge found C was in breach of the implied term of good faith, H had intentionally induced breach of contract, and both C and H were liable for civil conspiracy. The Court of Appeal allowed the appeal and dismissed B’s lawsuit."

The S.C.C. held (7:0) that the appeal with respect to C is allowed; the appeal with respect to H is dismissed; and the trial judge’s assessment of damages varied to $87,000 plus interest.

Changes To "Canada Not-For-Profits Corporations Act" Require Compliance By All

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In an effort to modernize its statutes and processes, the Government of Canada has brought about wholesale changes to the Canada Not-For-Profit Corporations Act ("the new NFP Act"). All federal not-for-profit corporations must complete the process to transition to the new rules no later than October 17th, 2014. Any not for profit corporation which fails to make the transition will be automatically dissolved. Read More...

Is It Permissible To Backdate The Effective Date Of A Contract?

It is common for two parties, particularly in the commercial context, to enter into a contract at one time, but agree to have the contract come into effect at an earlier time. This practice is colloquially known as backdating. Courts respect the parties' decision to backdate since giving effect to backdating provisions respects the parties' intentions as well as their freedom of contract (Chablis Textiles Inc. (Trustee of) v London Life Insurance Co, [1996] SCJ No 12, [1996] 1 SCR 160 at para 25). Read More...

Holding Companies Demystified

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The following is an article by Jason Melo of Collins Barrow National Cooperative Inc.

As tax professionals, we are often asked by clients to explain the concept and appropriate uses of holding companies. The answer generally is not straightforward; a variety of tax and commercial factors are relevant in any particular case. Though it is beyond the scope of this article to provide a complete list of potential benefits and drawbacks, an introduction to several key issues will be examined.